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  • Author: Zainab Usman, David Landry
  • Publication Date: 04-2021
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: Many African countries have placed economic diversification high on the policy agenda, yet they first need to define what it means in their specific structural and socioeconomic contexts. For decades, economic diversification has been a policy priority for low- and middle-income economies. In the words of former managing director of the International Monetary Fund (IMF), Christine Lagarde, “We know that economic diversification is good for growth. Diversification is also tremendously important for resilience.” Unfortunately, this goal continues to elude many African countries. In fact, the continent is home to eight of the world’s fifteen least economically diversified countries. This reality weakens the foundation of their economic transfomation and slows their pace of progress. It also makes these countries particularly vulnerable to sudden external shocks, as the pandemic-induced disruption of tourism and oil-dependent economies has illustrated. Given the importance of diversifying African economies, it is critical to recognize how various dimensions of diversification can have different implications for the menu of policy options. Closely associated with the process of structural transformation from lower to higher productivity sectors, economic diversification has three evident dimensions. The first relates to the expansion of economic sectors that contribute to employment and production or gross domestic product (GDP) diversification, and the second is associated with international trade or exports diversification. This paper, however, focuses on a third dimension that the economics literature pays scant attention to: fiscal diversification. This fiscal element involves expanding government revenue sources and public expenditure targets and can therefore play a central role in helping to catalyze broader economic transformation through the expansion of activity in specific industries and sectors. It is also critical that policymakers effectively measure the extent to which this objective is being achieved. Both the expansion of existing economic sectors and the creation of new ones may diversify an economy. But these processes are vastly different in practice and will garner distinct outcomes. Of the main tools used by economists to measure diversification, the Theil Index differentiates between the respective contributions of new economic sectors and existing ones to overall diversification. Another tool widely used by development practitioners—the Public Expenditure and Financial Accountability (PEFA) framework—has significant potential for evaluating fiscal diversification but would need to capture more information on government revenue collection and spending and link them to policy objectives.
  • Topic: Economics, Governance, Diversification, Trade
  • Political Geography: Africa
  • Author: Vijay Singh Chauhan, Sruti Vijayakumar
  • Publication Date: 05-2021
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: The World Trade Organization’s Trade Facilitation Agreement has placed trade facilitation initiatives high on the agenda of international governments. This case study of India studies what trade facilitation may mean for a fast-paced economy. In this paper the authors use the trigger presented by the World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA) to undertake a comprehensive review of various publicly available studies for India relating to performance measurement of the ecosystem that handles the cross-border movement of goods, focusing on the period since 2015. The paper summarizes the results of six key composite performance indicators—namely, (1) the Organisation for Economic Co-operation and Development’s (OECD’s) trade facilitation indicators (TFIs); (2) the World Bank’s Ease of Doing Business (EODB) Index; (3) the World Bank’s Logistics Performance Index (LPI); (4) the World Economic Forum’s (WEF’s) Global Competitiveness Index (GCI); (5) the World Bank’s World Governance Indicators (WGIs); and (6) the United Nations’ Global Survey on Trade Facilitation and Paperless Trade Implementation (GSTF-PTI). This paper, by examining these composite survey-based indicators and the intertemporal trends they exhibit for India, reveals that they have not been moving in agreement with each other and that some of the trends are evidently counterintuitive. A comparison between delineated subindicators of select composite indicators sometimes indicates surprising trends. Import cargo release times (a performance measurement prescribed by the TFA) for the largest containerized port in the country, the Jawaharlal Nehru Port Trust (JNPT), have been extracted from various studies that have relied on the data from the customs automation system; the container tracking system, which employs radio-frequency identification (RFID); and survey-based studies, including the Trading Across Borders (TAB) component of the World Bank’s EODB Index. These import cargo release time studies present a consistent trend of improvement since 2017. The paper, therefore, highlights the greater robustness of cargo release time trends, based particularly on technology-enabled data-driven studies as a more meaningful metric for measurement of performance of border management agencies and practices vis-à-vis survey or perception-based indicators representing “enablers” of trade facilitation.
  • Topic: Economics, Trade, WTO
  • Political Geography: South Asia, India
  • Author: Mehdi Lahlou
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: The coronavirus pandemic has turned into a global economic crisis with severe social effects in the least developed countries, particularly in Africa. Pre-existing challenges related to widespread poverty, demographic growth, food insecurity and governance issues have been exacerbated by the pandemic. While migration remains one of the key elements of the partnership agenda between Africa and the European Union, the aggravating socioeconomic situation in the African continent due to the impact of COVID-19 and its implications for migration dynamics requires going beyond business-as-usual approaches. The renewed scenario calls for a more comprehensive and development-oriented approach to migration, requiring new policy initiatives addressing the wider set of conditions that, beyond constituting developmental challenges in their own right, also drive migration in North Africa as well as in Sub-Saharan African countries.
  • Topic: Economics, Migration, European Union, Mobility, Asylum, COVID-19
  • Political Geography: Africa, Europe, North Africa
  • Author: Katrin Klöble
  • Publication Date: 01-2021
  • Content Type: Working Paper
  • Institution: German Development Institute (DIE)
  • Abstract: This paper addresses the self-selection of potential migrants. In particular, the study examines whether risk and time preferences explain a significant proportion in the movement heterogeneity of individuals. It is further intended to shed light on the role of social preferences (trust, altruism, reciprocity) as potential migratory determinants. By making use of a unique cross-sectional data set on migration intentions (Gallup World Poll) and experimentally-validated preferences (the Global Preference Survey) covering 70 countries worldwide, a probit model is estimated. The empirical results provide evidence that potential migrants exhibit higher levels of risk-taking and patience than their counterparts who stay at home (the stayers). This holds true across differing countries with various cultural backgrounds and income levels. Trust and negative reciprocity are found to be significantly related to migration aspirations as well. Yet conclusive clarifications still remain necessary, providing impetuses for future research.
  • Topic: Economics, Migration, Risk, Polls
  • Political Geography: Global Focus
  • Author: Benjamin Crost
  • Publication Date: 03-2021
  • Content Type: Working Paper
  • Institution: Empirical Studies of Conflict Project (ESOC)
  • Abstract: This paper provides evidence that adverse economic conditions contributed to the rise of anti-democratic extremism in the United States. A state-level analysis shows that increases in the unemployment rate during the Great Recession led to a large increase in the number of anti democratic extremist groups. The effect is concentrated in states with high pre-existing racial resentment, as proxied by racist web searches, and strongest for the male unemployment rate and the white unemployment rate. If unemployment had remained at its pre-recession level, the increase in anti-democratic groups between 2007 and 2010 could have been reduced by more than 60%.
  • Topic: Economics, Democracy, Inequality, Far Right, Economic Inequality, Political Extremism
  • Political Geography: United States
  • Author: Björn Brey
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
  • Abstract: Did recent technological change, in the form of automation, affect immigration policy in the United States? I argue that as automation shifted employment from routine to manual occupations at the bottom end of the skill distribution, it increased competition between natives and immigrants, consequently leading to increased support for restricting low-skill immigration. I formalise this hypothesis theoretically in a partial equilibrium model with constant elasticity of substitution in which technology leads to employment polarization, and policy makers can vote on immigration legislation. I empirically evaluate these predictions by analysing voting on low-skill immigration bills in the House of Representatives during the period 1973-2014. First, I find evidence that policy makers who represent congressional districts with a higher share of manual employment are more likely to support restricting low-skill immigration. Second, I provide empirical evidence that representatives of districts which experienced more manual-biased technological change are more likely to support restricting low-skill immigration. Finally, I provide evidence that this did not affect trade policy, which is in line with automation having increased employment in occupations exposed to low-skill immigration, but not those exposed to international trade.
  • Topic: Economics, Immigration, Economic Policy, Automation, Technocracy, Skilled Labor
  • Political Geography: United States
  • Author: Samer Matta, Michael Bleaney, Simon Appleton
  • Publication Date: 01-2021
  • Content Type: Working Paper
  • Institution: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
  • Abstract: An extensive literature has examined the economic effects of non-violent political instability events. Nonetheless, the issue of whether economies react differently over time to such events remains largely unexplored. Using synthetic control methodology, which constructs a counterfactual in the absence of political instability, we estimate the output effect of 38 regime crises in the period 1970-2011. A crucial factor is whether crises are accompanied by mass civil protest. In the crises accompanied by mass civil protest, there is typically an immediate fall in output which is never recovered in the subsequent five years. In crises unaccompanied by protest, there are usually no significant effects. Furthermore, this paper provides new evidence that regime crises (with and without mass civil protest) have heterogeneous (country-specific) effects on output per capita.
  • Topic: Economics, Political Economy, Regime Change, Political stability, Economic Growth, Protests, Economic Policy, Civil Unrest
  • Political Geography: Global Focus
  • Author: Sonali Chowdhry, Gabriel Felbermayr
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: In 2011, the EU-South Korea Free Trade Agreement (EUKFTA) entered into force. With its focus on non-tariff barriers (NTBs), it is a leading example of a deep new generation agreement. Using detailed French customs data for the period 2000 to 2016, we investigate how exporters of different size have gained from the agreement. Applying a diff-in-diff strategy that makes use of the rich dimensionality of the data, we find that firms with larger pre-FTA sizes benefit more from the FTA than firms at the lower end of the size distribution, both at the extensive (product) and the intensive margins of trade. The latter finding is in surprising contrast to leading theories of firm-level behavior. Moreover, we find that our main result is driven by NTB reductions rather than tariff cuts. In shedding light on the distributional effects of trade agreements within exporters, our findings highlight the need for effective SME-chapters in FTAs.
  • Topic: Economics, International Political Economy, Treaties and Agreements, Tariffs, Trade
  • Political Geography: Europe, South Korea, European Union
  • Author: Vincent Stamer
  • Publication Date: 01-2021
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: Global container ship movements may reliably predict global trade flows. Aggregating both movements at sea and port call events produces a wealth of explanatory variables. The machine learning algorithm partial least squares can map these explanatory time series to unilateral imports and exports, as well as bilateral trade flows. Applying out-of-sample and time series methods on monthly trade data of 75 countries, this paper shows that the new shipping indicator outperforms benchmark models for the vast majority of countries. This holds true for predictions for the current and subsequent month even if one limits the analysis to data during the first half of the month. This makes the indicator available at least as early as other leading indicators.
  • Topic: Economics, Science and Technology, Trade, Shipping, Machine Learning
  • Political Geography: Global Focus
  • Author: Chuck Fang, Julian Schumacher, Christoph Trebesch
  • Publication Date: 01-2021
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: Sovereign debt crises are difficult to solve. This paper studies the “holdout problem”, meaning the risk that creditors refuse to participate in a debt restructuring. We document a large variation in holdout rates, based on a comprehensive new dataset of 23 bond restructurings with external creditors since 1994. We then study the determinants of holdouts and find that the size of creditor losses (haircuts) is among the best predictors at the bond level. In a restructuring, bonds with higher haircuts see higher holdout rates, and the same is true for small bonds and those issued under foreign law. Collective action clauses (CACs) are effective in reducing holdout risks. However, classic CACs, with bond-by-bond voting, are not sufficient to assure high participation rates. Only the strongest form of CACs, with single-limb aggregate voting, minimizes the holdout problem according to our simulations. The results help to inform theory as well as current policy initiatives on reforming sovereign bond markets.
  • Topic: Debt, Economics, International Political Economy, Law, Credit
  • Political Geography: Global Focus
  • Author: George J. Borjas, Anthony Edo
  • Publication Date: 04-2021
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: Immigrant supply shocks are typically expected to reduce the wage of comparable workers. Natives may respond to the lower wage by moving to markets that were not directly targeted by immigrants and where presumably the wage did not drop. This paper argues that the wage change observed in the targeted market depends not only on the size of the native response, but also on which natives choose to respond. A non-random response alters the composition of the sample of native workers, mechanically changing the average native wage in affected markets and biasing the estimated wage impact of immigration. We document the importance of this selection bias in the French labor market, where women accounted for a rapidly increasing share of the foreign-born workforce since 1976. The raw correlations suggest that the immigrant supply shock did not change the wage of French women, but led to a sizable decline in their employment rate. In contrast, immigration had little impact on the employment rate of men, but led to a sizable drop in the male wage. We show that the near-zero correlation between immigration and female wages arises partly because the native women who left the labor force had relatively low wages. Adjusting for the selection bias results in a similar wage elasticity for both French men and women (between -0.8 and -1.0).
  • Topic: Economics, Gender Issues, Political Economy, Labor Issues, Immigration, Workforce
  • Political Geography: France
  • Author: Thomas Brand, Fabien Tripier
  • Publication Date: 03-2021
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: Highly synchronized during the Great Recession of 2008-2009, the Euro area and the US have diverged in the period that followed. To explain this divergence, we provide a structural interpretation of these episodes through the estimation for both economies of a business cycle model with financial frictions and risk shocks, measured as the volatility of idiosyncratic uncertainty in the financial sector. Our results show that risk shocks have stimulated US growth in the aftermath of the Great Recession and have been the main driver of the double-dip recession in the Euro area. They play a positive role in the Euro area only after 2015. Risk shocks therefore seem well suited to account for the consequences of the sovereign debt crisis in Europe and the subsequent positive effects of unconventional monetary policies, notably the ECB’s Asset Purchase Programme (APP).
  • Topic: Debt, Economics, International Political Economy, Global Recession, Finance, Europe Union, Economic Growth, Risk
  • Political Geography: United States, Europe, Global Focus
  • Author: Cécile Couharde, Carl Grekou, Valérie Mignon
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: In this paper, we investigate from a policy coordination viewpoint the desirability of the West African monetary union project, ECO. Our approach is built around the inclusion of national objectives in the regional integration perspective. Thanks to cluster analysis, we identify two groups of countries with relatively homogenous sustainable exchange rate paths in West Africa. We also find that no single currency peg nor a freely floating exchange rate regime would be preferable for any of the countries or groups of economies. Overall, our findings argue in favor of two ECOs —at least in a first step, i.e., one for each of the two identified zones. Each ECO would serve as a virtual anchor —with some flexibility— for the considered group, and would be determined by a basket of currencies mainly composed of euro and US dollar.
  • Topic: Economics, International Political Economy, Monetary Policy, Currency
  • Political Geography: West Africa
  • Author: Pierre Cotterlaz, Etienne Fize
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper documents the effect of information frictions on trade using a historical large-scale improvement in the transmission of news: the emergence of global news agencies. The information available to potential traders became more abundant, was delivered faster and at a cheaper price between countries covered by a news agency. Exploiting differences in the timing of telegraph openings and news agency coverage across pairs of countries, we are able to disentangle the pure effect of information from the effect of a reduction in communication costs. Panel gravity estimates reveal that bilateral trade increased by 30\% more for pairs of countries covered by a news agency and connected by a telegraph than for pairs of countries simply connected by a telegraph.
  • Topic: Economics, International Political Economy, Partnerships, Media, News Analysis, Trade
  • Political Geography: Global Focus
  • Author: Vincent Bodart, François Courtoy, Erica Perego
  • Publication Date: 01-2021
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, because of the existence of the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.
  • Topic: Economics, International Political Economy, Monetary Policy, Finance, Commodities, Interest Rates, Exports, Price
  • Political Geography: Global Focus
  • Author: Julia Grauvogel, Hana Attia
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: German Institute of Global and Area Studies
  • Abstract: Research on sanctions has hitherto focused on their implementation and effectiveness, whereas the termination of such measures has received only little attention. The traditional model, which looks at sanctions and their removal in terms of rational, interstate bargaining, focuses on how cost–benefit calculations affect the duration and termination of such measures. Yet, this research insufficiently captures the back and forth between easing sanctions, stagnation, and renewed intensification. It also fails to account for the multifaceted social relations between senders, targets, and third actors that shape these termination processes, as well as for the signalling dimension of ending sanctions – not least because existing datasets tend to operationalise sanctions as a single event. To help fill these gaps, the paper proposes a process-oriented and relational understanding that also recognises how sanctions termination conveys the message of ending the visible disapproval of the target, which may be heavily contested. Case studies on Zimbabwe and Iran illustrate how such an approach sheds light on the different logics of action that shape processes of sanctions termination, and thereby contributes to a more holistic understanding of sanctions in general.
  • Topic: Foreign Policy, Economics, Sanctions
  • Political Geography: Africa, Iran, Middle East, Zimbabwe
  • Author: Ricardo Hausmann, Miguel Angel Santos
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: El Laboratorio de Crecimiento de la Universidad de Harvard, bajo el auspicio de la Fundación Gordon and Betty Moore, ha desarrollado esta investigación para identificar las capacidades productivas existentes en Loreto y las actividades económicas con potencial para liderar la transformación estructural de su economía. Este reporte forma parte de una investigación más amplia – Transformación estructural y restricciones limitantes a la prosperidad en Loreto, Perú – que busca aportar insumos para el desarrollo de políticas públicas a escala nacional y regional que contribuyan a promover el desarrollo productivo y la prosperidad de la región, tomando en cuenta sus características particulares.
  • Topic: Development, Economics, Diversification, Economic Complexity
  • Political Geography: Central America, Mexico
  • Author: Kristin Forbes, Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper models inflation by combining the multicountry framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.
  • Topic: Economics, Inflation, Data
  • Political Geography: Global Focus
  • Author: Chad P. Bown
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: While the public was transfixed by the Trump administration’s policies alleging that imports were a threat to America’s national security during 2017–20, there was a concomitant and more quiet US policy shift on the export side. Addressing the national security threat presented by exports posed different economic and institutional challenges from those associated with import policy, including the acknowledgment that export controls for legitimate national security reasons can be the first-best policy to confront the problem at its source. Yet, export controls could also be misused as a beggar-thy-neighbor policy to redistribute economic well-being across countries, even from one ally to another. This paper describes how US export control policy evolved over 2017–20, as well as the international institutions—first the Coordinating Committee for Multilateral Export Controls (COCOM), then the Wassenaar Arrangement—historically tasked with multilateralizing US export restrictions used to protect national security. With the potential for US export control policy to brush up more frequently against WTO rules designed to limit the use of export restrictions, the paper also highlights new challenges for the WTO’s system of resolving trade disputes. Overall, a US failure to strike the right balance for its export control policy would result in it being ineffective at addressing national security risks, costly for the economy, and problematic for trade and diplomatic relations.
  • Topic: Economics, Government, National Security, Exports, Trade
  • Political Geography: North America, United States of America
  • Author: Olivier Jeanne
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
  • Topic: Economics, Tariffs, Exchange Rate Policy, Currency
  • Political Geography: North America, United States of America
  • Author: Joseph E. Gagnon, Olivier Jeanne
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound.
  • Topic: Economics, Finance, Central Bank, Global Bond Market
  • Political Geography: Global Focus
  • Author: Chad P. Bown, Aksel Erbahar, Maurizio Zanardi
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
  • Topic: Economics, International Trade and Finance, Global Markets, Finance, Trade
  • Political Geography: Global Focus
  • Author: David Reifschneider, David Wilcox
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past. This reality helped motivate the Fed to undertake the policy framework review in which it is currently engaged. Researchers have suggested many steps the Fed could take to improve its recession-fighting ability; however, no consensus has emerged as to which of these steps would be both practical and maximally effective. This paper aims to fill that gap. It recommends that the Fed commit as soon as possible to a new approach for fighting recessions, involving two key elements. First, the Fed should commit that whenever it runs out of room to cut the federal funds rate further, it will leave the rate at its minimum level until the labor market recovers and inflation returns to 2 percent. Second, the Fed should commit that under the same circumstances, it will begin to purchase longer-term assets in volume and will continue such purchases until the labor market recovers. If the forces driving the next recession are not unusually severe, this framework might allow the Fed to be as effective at fighting that recession as it was in the past. If the next recession is more severe, however, the Fed will probably run out of ammunition even if it takes the two steps recommended here. Therefore, both monetary and fiscal policymakers should consider yet other steps they could take to enhance their ability to fight future recessions.
  • Topic: Economics, Monetary Policy, Federal Reserve
  • Political Geography: North America, Global Focus, United States of America
  • Author: Chad P. Bown, Soumaya Keynes
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: On December 10, 2019, the World Trade Organization’s (WTO) 25-year-old system of resolving disputes broke down. This paper explains why. It describes the dysfunctional system that preceded the WTO, when the United States dealt with politically troublesome imports by using voluntary export restraints and increasingly resorted to the “aggressively unilateral” Section 301 policy to resolve trade concerns. The WTO was a compromise between the rest of the world and the United States, whereby the latter accepted some constraints with the expectation that the new system of binding dispute settlement would serve its interests. But although the creation of the WTO resolved some concerns about American unilateralism in the short term, its system of handling disputes turned out to be politically unsustainable.
  • Topic: Economics, World Trade Organization, Trade, Donald Trump
  • Political Geography: North America, United States of America
  • Author: Okko-Pekka Salmimies
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: Finland is preparing a Strategic Programme for the Circular Economy this autumn. It offers an opportunity to strengthen policy coherence between domestic policies and different aspects of foreign policy relevant when promoting a circular economy.
  • Topic: Foreign Policy, Economics, Domestic politics
  • Political Geography: Europe, Finland, Scandinavia
  • Author: Jens Beckert, Timur Ergen
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: This paper discusses sociological analyses of the formation and role of expectations in the economy. Recognition of the social constitution of expectations advances the understand- ing of economic action under conditions of uncertainty and helps to explain core features of modern capitalist societies. The range of applications of the analytical perspective is il- lustrated by closer examination of three core spheres of capitalist societies: consumption, investment, and innovation. To provide an idea of core challenges of the approach, three major research questions for the sociological analysis of expectations are presented.
  • Topic: Economics, Markets, Sociology, Capitalism, Innovation
  • Political Geography: Global Focus
  • Author: Adedeji Adeniran, Idris Ademuyiwa
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The growth of digitalization and digital technology adoption in Africa holds the key to strengthening and diversifying economies across the continent. Although these developments offer potentially life-changing benefits for consumers, businesses and governments, the inherent flaws in the digital market mean these benefits are not guaranteed. As most gains from the digital economy are largely concentrated in the United States and China, the digital divide may widen the gap between the Global North and the Global South.
  • Topic: Economics, Governance, Digital Economy, Digitalization
  • Political Geography: Africa, Global South
  • Author: Rudolf Furst
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Institute of International Relations Prague
  • Abstract: The Euro-Japanese rapprochement stimulates the Japanese interest in the new EU member states, which are then matched with Japanese investments and Japan’s global trade strategy. The V4 countries benefit from their geographical position, existing infrastructure and political stability, industrial tradition, and low labour costs, emphasizes Rudolf Fürst.
  • Topic: Economics, Bilateral Relations, Labor Issues, European Union, Political stability, Industry
  • Political Geography: Japan, Europe, Asia
  • Author: John Lee
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Hudson Institute
  • Abstract: Throughout the United States, it is becoming increasingly clear that the Chinese Communist Party (CCP) is exploiting COVID-19 in an effort to reshape the global order and enhance China’s international leadership at the expense of the US. A range of prominent commentators further assert that the Trump administration bears much of the blame for this turn of events. This argument tends to rest on twin assumptions:1 China is winning the battle of narratives when it comes to comparative national competence and its decisiveness in responding to its COVID-19 outbreak. The Trump administration is damaging America’s standing by getting off to a bad start in its response to the pandemic, exposing the underlying weaknesses of American institutions and preparedness for such a crisis. These arguments correctly acknowledge that the global pandemic is occurring within a context of US-China strategic, political, and economic competition and/or rivalry. This is the point of warnings to the administration that there is more at stake than containing and managing the virus, even if that is the immediate priority.
  • Topic: International Relations, Foreign Policy, Economics, Health, National Security, COVID-19
  • Political Geography: China, East Asia
  • Author: Harold Furchtgott-Roth, Kirk R. Arner
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Hudson Institute
  • Abstract: American businesses and consumers have an unequal relationship. Consumers generally are and should be sovereign because a consumer—not a seller, nor a third party, nor even the government—usually decides what to purchase. Consumers must like a business to buy its product or service. If a business has poor service, sales will suffer. And if a business is tainted by scandal, customers will flee. As courtiers of purchasing power, businesses go on bended knee to pay homage to the consumer. Typically, a business need not like a consumer to sell products or services. In most lines of business, a seller must sell to anyone willing to pay. And although there are types of businesses where a seller can legally refuse a sale, most rational sellers seek as many customers as possible.
  • Topic: Economics, Government, Sovereignty, Regulation
  • Political Geography: Global Focus
  • Author: Dirk Schoenmaker
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Bruegel
  • Abstract: Governments and companies can reinforce each other in their pursuit of sustainable development, which is based on three pillars: economic, social and environmental. An impact economy, in which governments and companies balance profit and impact, is best placed to achieve the United Nations sustainable development goals.
  • Topic: Economics, Environment, United Nations, Governance, Sustainable Development Goals, Business , Private Sector
  • Political Geography: Global Focus
  • Author: Zsolt Darvas, Zoltan Schepp
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Bruegel
  • Abstract: This paper presents unprecedented exchange rate forecasting results based upon a new model which approximates the gap between the fundamental equilibrium exchange rate and the actual exchange rate with the long-maturity forward exchange rate.
  • Topic: Economics, Governance, Global Political Economy, Exchange Rate Policy
  • Political Geography: Global Focus
  • Author: Clara Gillespie
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Korea Economic Institute of America (KEI)
  • Abstract: Under President Moon Jae-in, South Korea has set an ambitious target to move from being “first in the world” in the race to 5G to “first in global quality.” Yet, while a range of industry and government stakeholders are investing heavily in making this vision a reality, a number of factors are likely to weigh on whether or not these efforts yield significant results. These include uncertainties about how to further accelerate development in ways that lead to better returns on investments, and about how to navigate complex geopolitical considerations, including ongoing debates about Huawei’s involvement in 5G network infrastructure. Each of these areas will, in turn, require domestic stakeholders to make complex assessments about potential tradeoffs and risks. Thus, this paper assesses South Korea’s emerging 5G era at the one-year mark, and highlights key successes, setbacks, and ongoing challenges. Building on these findings, the paper concludes by offering several potential scenarios for future development, and suggestions for ways forward.
  • Topic: Economics, Science and Technology, 5G
  • Political Geography: Asia, South Korea
  • Author: Jihad Yazigi
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Arab Reform Initiative (ARI)
  • Abstract: The already bleak prospects of the Syrian economy have worsened in recent months with the Lebanon crisis, the enactment of the Caesar Act and now the coronavirus pandemic. This paper examines their impact on the Syrian economy and the population at large. While the cumulative impact is hard to assess at this stage, Syria’s population will remain heavily dependent on the international humanitarian effort. The future of this effort will itself depend on major donor countries whose own economies are likely to emerge weakened from the coronavirus pandemic.
  • Topic: Economics, Public Health, Humanitarian Crisis, Pandemic, COVID-19
  • Political Geography: Middle East, Lebanon, Syria
  • Author: Sami Halabi
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Arab Reform Initiative (ARI)
  • Abstract: Facing an economy in free-fall, the Lebanese government has finally adopted a financial recovery plan that it has sent to the IMF and international donors. This paper argues that the plan fails to introduce strong accountability measures to address rampant corruption and mismanagement and does not tackle widespread inequality which could be done through a better distribution of losses and the introduction of more progressive taxation. Despite the government’s stated promise to “protect the poorest segments of the population from the dire consequences of the crisis”, the paper expects the plan to inevitably harm Lebanon’s poorest as well as its middle class.
  • Topic: Economics, Financial Crisis, Governance, Recovery
  • Political Geography: Middle East, Lebanon
  • Author: Ismael Sheikh Hassan
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Arab Reform Initiative (ARI)
  • Abstract: Lebanon is facing an unprecedented crisis with financial and economic collapse, lack of political trust, institutional deadlock, health crisis, and environmental degradation, to name a few. To face these challenges, the government should undertake a reform plan that addresses key priority areas to restore trust and salvage the country. We’ve asked experts to give their views about what they see as essential reforms in each area.
  • Topic: Economics, Financial Crisis, Reform
  • Political Geography: Middle East, Lebanon
  • Author: Aleś Alachnovič, Andrzej Raczko, Izabela Styczynska, Jarosław Neneman, Kateryna Karunska, Krzysztof Głowacki, Pawel Swianiewicz, Sierž Naŭrodski
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Center for Social and Economic Research - CASE
  • Abstract: Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991. As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
  • Topic: Economics, Governance, Economic Growth, Trade
  • Political Geography: Eurasia, Belarus
  • Author: Avani Kapur, Sharad Pandey, U Ranjan, Vastav Irava
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Centre for Policy Research, India
  • Abstract: The ‘Study of State Finances 2020-21’ Working Paper delves into the revenue and expenditure performance of 17 States. As the COVID-19 pandemic tightens its grip, this timely analysis offers a unique window into the fiscal space available with States prior to the lockdown. This information is critical at a time when they are expected to craft adequate social protection responses and restart their economies.
  • Topic: Economics, Governance, Finance, COVID-19
  • Political Geography: South Asia, India
  • Author: Deepak Sanan, Sanjay Mitra
  • Publication Date: 11-2020
  • Content Type: Working Paper
  • Institution: Centre for Policy Research, India
  • Abstract: Reforms designed to address core issues and their sequencing and timing would be critical to ensure the eventual success of the latest initiatives in the power sector. Lessons from the experience of earlier sectoral reform programmes and recommendations regarding the general architecture of central interventions, would need to be taken on board. Through a simple scenario building exercise, this paper concludes that the parlous financial position of the distribution utilities after lockdown requires that “reforms” follow “recovery”. The concurrent roll out of stringent reform measures on several fronts during a period of severe financial stress could seriously impair the prospects of a viable power sector in the near future. This, in turn, will not only hamper our planned promotion of renewables-based electricity but act as a brake on the entire process of economic recovery.
  • Topic: Economics, Energy Policy, Governance, Reform
  • Political Geography: South Asia, India
  • Author: Susan Namirembe Kavuma, Assumpta Tibamwenda, Elijah Dickens Mushemeza, George Bogere, Lillian Tamale, Eugene Gerald Ssemakula, Jonas Mbabazi
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Advocates Coalition for Development and Environment (ACODE)
  • Abstract: This report presents the findings and discussions of Local Economic Development (LED) practices in nine districts of Northern Uganda that included: Adjumani, Amuru, Arua, Kitgum, Lira, Omoro, Oyam, and Yumbe. The analysis provides insights into implementation of LED policies, and the level of preparedness of the districts to implement the policy as a tool for economic transformation and development. LED was conceptualised as a process or development model where Local Governments, the private sector, and the community, are jointly and collectively engaged in identification, mobilization and management of resources at the local level. LED is therefore intended to create conducive environments for investment, increased household incomes, and higher revenues for Local Governments.
  • Topic: Development, Economics, Governance, Local
  • Political Geography: Uganda, Africa
  • Author: Trevon Logan, Peter Temin
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: This paper records the path by which African Americans were transformed from enslaved persons in the American economy to partial participants in the progress of the economy. The path was not monotonic, and we organize our tale by periods in which inclusiveness rose and fell. The history we recount demonstrates the staying power of the myth of black inferiority held by a changing white majority as the economy expanded dramatically. Slavery was outlawed after the Civil War, and blacks began to participate in American politics en masse for the first time during Reconstruction. This process met with white resistance, and black inclusion in the growing economy fell as the Gilded Age followed and white political will for black political participation faded. The Second World War also was followed by prosperity in which blacks were included more fully into the white economy, but still not completely. The Civil Rights Movement proved no more durable than Reconstruction, and blacks lost ground as the 20th century ended in the growth of a New Gilded Age. Resources that could be used to improve the welfare of whites and blacks continue to be spent on the continued repressions of blacks.
  • Topic: Economics, Race, History, Capitalism, Slavery
  • Political Geography: United States, Global Focus
  • Author: Kelesego Mmolainyane
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Botswana Institute for Development Policy Analysis
  • Abstract: In her quest to further graduate to the high-income status, Botswana seeks to invest more in infrastructure development for both productive and social use. An efficient and effective infrastructure provision is fundamental to excellent public service delivery and access. Sadly, Botswana, like many other world economies, has a challenge of having an infrastructure financing gap. One of the innovative ways to fill this gap is through public private partnerships (PPPs) with the capital market that has excess liquidity. Infrastructure PPPs are complex and capital intensive projects that require project finance experts to advise parties involved regarding returns and risks associated with each project. Various project-financing models can be designed to suit project specifications and they cannot be over-generalised for all PPP projects. Nevertheless, given the tight fiscal space, Botswana now, more than ever, should consider issuing PPP bonds and applying user changes model to finance economic PPP infrastructure for sustainable and inclusive economic growth.
  • Topic: Development, Economics, Infrastructure, Finance, Public Sector, Economic Development , Private Sector
  • Political Geography: Africa, Botswana
  • Author: Johanne Motsatsi, Goitseone Khanie
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Botswana Institute for Development Policy Analysis
  • Abstract: The paper examines the key determinants of industrial growth in Botswana, using manufacturing sector value added as the proxy for industrial growth. It employs the Autoregressive Distributed Lag (ARDL) cointegration approach using annual time series data for the period 1983 to 2015. Empirical results show that industrial growth is driven by financial sector development, human capital development, trade openness and foreign direct investment. Specifically, domestic credit to the private sector as a percentage of GDP and secondary school enrolment ratio are found to be significantly related to manufacturing value added as a percentage of GDP both in the long run and short run. While the relationship is limited to long run for total trade to GDP, it only exits in the short run for FDI net inflows. The study therefore recommends that policy makers should design and ensure proper implementation of financial sector development strategies that can help ease access to credit for manufacturing enterprises in the country. There is also a need for a holistic approach in the design and implementation of innovation and human resource development policies in order to provide a conducive environment for skills acquisition, innovation and technological advancements in the manufacturing sector. Trade policies and export promotion strategies should heighten productivity and value addition in the manufacturing sector, so as to make local firms internationally competitive. Finally, with regards to FDI, the Government of Botswana should create an environment that could entice multinationals to invest in the local manufacturing industry. This, however, should be coupled with protectionist policies to avoid crowding out local manufacturers and exposing them to foreign competition.
  • Topic: Development, Economics, Economic Growth, Manufacturing, Economic Development , Industrialization
  • Political Geography: Africa, Botswana
  • Author: Ratang Sedimo, Kelesego Mmolainyane
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Botswana Institute for Development Policy Analysis
  • Abstract: This study seeks to examine institutional frameworks that exist in Botswana to protect the rights of ordinary shareholders. There is no literature on the subject matter in the context of Botswana; hence this study attempts to fill in the literature gap. The study uses a variety of data collection methods, such as semi-structured interviews, the Choppies case study and lessons learnt from other jurisdictions. Findings reveal that ordinary shareholders’ rights protection involves the use of institutional frameworks. In Botswana, existing frameworks are not adequate to protect ordinary shareholders’ rights. Furthermore, the study shows that ordinary shareholders in Botswana are mainly exposed to risks of losing their investments, partially or entirely, in case of non-compliance to regulatory requirements as shown by the reduction in Choppies’ stock price from P1.20 to P0.40 between years 2012 and 2018. The study suggests that the existing institutional frameworks should be reviewed to ensure adequate protection of ordinary shareholders’ rights.
  • Topic: Security, Economics, Human Rights, Investment, Macroeconomics, Land Rights, Labor Rights
  • Political Geography: Africa, Botswana
  • Author: Marumo Omotoye
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Botswana Institute for Development Policy Analysis
  • Abstract: The construction industry (CI) is considered one of the most corrupt both internationally and regionally. Therefore, this study examined the views and attitudes of professionals in Botswana’s CI towards the role whistleblowing (or protected disclosure) can play in curbing corruption in the sector. A convergent mixed methods approach was adopted. Semi-structured interviews were conducted with key stakeholders from the construction industry. Furthermore, a self-administered survey was utilised to collect quantitative data from 117 construction firms. Data revealed that there was little awareness of whistleblowing legislation. Fear of retaliation or punishment and job loss, and a lack of education on whistleblowing were identified as some of the most substantial barriers to effective whistleblowing in the industry. From a public policy perspective, it is recommended that an emphasis be placed on improving levels of education and awareness on whistleblowing in the construction sector. In addition, there should be consideration to amend the Whistleblowing Act 2016 to include construction industry regulators, the Public Procurement and Asset Disposal Board, and private media amongst the list of institutions authorised to receive reports of impropriety in order to extend the scope of legal protection to whistleblowers in the sector. Recommendations for further research are provided.
  • Topic: Corruption, Development, Economics, Public Sector, Manufacturing, Economic Development , Private Sector, Industry, Whistle Blowing
  • Political Geography: Africa, Botswana
  • Author: Jorge Ignacio Del Castillo Machicado
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Institute for Advanced Development Studies (INESAD)
  • Abstract: This article researches on the evolution of the business regulatory framework of Bolivia from 2006 to 2017 and its relationship with the country’s Labor productivity, Total Factor Productivity, and its Informal Economy size. To do this, it analyzes the Doing Business annual reports and standardizes each year overall score to the most recent methodology developed by the World Bank Group. Furthermore, it complements its finding with qualitative data through semi-structured interviews to key actors in the Bolivian economy. Overall, this paper finds that few steps have been taken to improve Bolivia’s Business regulatory framework from the period of 2006-2017, result in a lower rank in the Doing Business report and keeping its score constant. The lack of initiative in working towards more efficient policies, complex nature and poor adaptability of new technological practices have stagnated the improvements of business regulations along their lifecycles. As a consequence, Bolivia Total Factor Productivity, Informal Economy size and Labor productivity have shown no improvement over the last 10 years.
  • Topic: Economics, Science and Technology, Labor Issues, World Bank, Regulation, Business
  • Political Geography: Latin America, Bolivia
  • Author: Amat Adarov, Mahdi Ghodsi
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: The preferential trade agreement between the Eurasian Economic Union (EAEU) and Iran on mutual trade entered into force in October 2019. In this report we estimate its expected impact at aggregate and sectoral levels using the gravity model of trade based on the global sample of bilateral trade flows at the HS 6-digit level. The analysis suggests that the implementation of the agreement will boost mutual trade for both trading partners, with relatively greater gains expected for the EAEU’s exports to Iran. On aggregate, the total gains in mutual trade are estimated to reach almost USD 46 million, with exports from the EAEU to Iran expected to increase by 9.7%, compared with a rise in exports from Iran to the EAEU of up to 4%. The difference in the impact will also be significant across the five EAEU countries as well as across sectors, with the major export gains expected to accrue in the chemicals and agri-food sectors, especially trade in miscellaneous fruits and vegetables, as well as in the textile, polymer production and metals sectors.
  • Topic: Economics, Treaties and Agreements, Global Political Economy, Exports, Trade
  • Political Geography: Iran, Kazakhstan, Armenia, Belarus
  • Author: Amat Adarov, Robert Stehrer
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: The paper studies the drivers of productivity at country and sectoral levels over the period 2000-2017 with the focus on the impact of capital accumulation and structure. The analysis confirms an especially important role of ICT and intangible digital capital for productivity growth, particularly in the manufacturing sectors. While backward global value chain participation and EU integration are also found to be instrumental for accelerating productivity growth, the impact of inward foreign direct investment is not robustly detected when the data is purged from the effects of special purpose entities and outlier countries.
  • Topic: Economics, Foreign Direct Investment, European Union, Digital Economy, Capital Flows, Trade
  • Political Geography: Europe, Global Focus
  • Author: Mahdi Ghodsi, Oliver Reiter, Robert Stehrer, Roman Stöllinger
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: The global economy is currently experiencing a new wave of technological change involving new technologies, especially in the realm of artificial intelligence and robotics, but not limited to it. One key concern in this context is the consequences of these new technologies on the labour market. This paper provides a comprehensive analysis of the direct and indirect effects of the rise of industrial robots and productivity via international value chains on various industrial indicators, including employment and real value added. The paper thereby adds to the existing empirical work on the relationship between technological change, employment and industrial growth by adding data on industrial robots while controlling for other technological advancements measured by total factor productivity (TFP). The results indicate that the overall impact of the installation of new robots did not statistically affect the growth of industrial employment during the period 2000–2014 significantly, while the overall impact on the real value added growth of industries in the world was positive and significant. The methodology also allows for a differentiation between the impact of robots across various industries and countries based on two different perspectives of source and destination industries across global value chains.
  • Topic: Economics, Science and Technology, Digital Economy, Economic Growth, Industry, Robotics
  • Political Geography: Global Focus
  • Author: Surbhi Kesar, Rosa Abraham, Rahul Lahoti, Paaritosh Nath, Amit Basole
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Centre for Sustainable Employment, Azim Premji University
  • Abstract: We analyze findings from a large-scale survey of around 5000 respondents across 12 states of India to study the impact of COVID-19 pandemic containment measures (lockdown) on employment, livelihoods, food security and access to relief measures. We find a massive increase in unemployment, an equally dramatic fall in earnings among informal workers, large increases in food insecurity, depletion of savings and patchy coverage of relief measures. Two-thirds of our respondents lost work. The few informal workers who were still employed during the lockdown experienced more than a fifty percent drop in their earnings. Even among regular wage workers, half received either no salary or reduced salary during the lockdown. Almost eighty percent of surveyed households experienced a reduction in their food intake and a similar percentage of urban households did not have enough money to pay next month's rent. We also use a set of logistic regressions to identify how employment loss and food intake varies with individual and householdlevel characteristics. We find that migrants and urban Muslims are significantly worse off with respect to employment and food security. Among employment categories, self-employed workers were more food secure. The Public Distribution System (PDS) system was seen to have the widest reach among social security measures. However, even under PDS, 16 percent of vulnerable urban households did not have access to government rations. Further, half of the respondents reported not receiving any cash transfers (state or central). We conclude that much more is needed in the way of direct fiscal support that has been announced thus far by state and central governments in India.
  • Topic: Economics, Labor Issues, Employment, Unemployment, Pandemic, COVID-19
  • Political Geography: India
  • Author: Miguel Jaramillo, Hugo Nopo
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Group for the Analysis of Development (GRADE)
  • Abstract: Latin America is currently suffering from two independent but related shocks: the impact of COVID-19 and the shock of commodity prices. Peru, we argue, is a case in which the strongest impact comes from the pandemic. Peru was the first country in Latin America to react and implement sanitary and economic measures against the coronavirus. The country has been in mandatory quarantine since Monday, March 16. This carries very important challenges for all economic actors. Global and national activity has suffered a sudden stop with direct implications for: (i) the income generating capacity of independent workers, (ii) the jobs of formal and informal and informal workers, and (iii) the survival of small, medium and large companies. In this note we consider the situation of Peruvian households in the face of the pandemic, exploring their vulnerabilities through an analysis of their main source of income generation: work. We also consider the situation of the companies that employ the workers under analysis. We present an overview of what the government’s main action have been so far and offer some recommendations.
  • Topic: Economics, Political Economy, Economic Policy, Coronavirus, Pandemic, COVID-19
  • Political Geography: Latin America, Peru
  • Author: Santiago Garriga, Dario Tortarolo
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
  • Abstract: We explore how the way in which tax credits are disbursed affects employer’s behavior, wages, and employment. We exploit a change in the payment system in Argentina that was gradually rolled out between 2003 and 2010. Under the old system, employers were in charge of delivering family allowances to their employees together with the monthly salary, and the transfer was deducted from employer social security contributions. For transparency purposes, the government eliminated the intermediary role of firms and started depositing the transfer directly into workers’ bank accounts. Using employer-employee administrative data and an event-study approach, we show that the way tax credits are disbursed matters for the final economic incidence. Our evidence suggests that employers shift part of the incidence of the transfer by paying lower wages. We document larger wage effects in small and less unionized firms and we do not find evidence of pay equity concerns (e.g., effect mostly driven by new hires rather than incumbent workers). Our findings are therefore in line with the hypothesis that transfers are not all captured dollar for dollar by workers. These results raise questions about the use of employers as intermediaries to disburse the transfer; where less salient schemes may lead to capture by employers.
  • Topic: Economics, Labor Issues, Employment, Work Culture, Economic Inequality
  • Political Geography: Argentina, Latin America
  • Author: Dario Tortarolo, Guillermo Cruces, Victoria Castillo
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
  • Abstract: We exploit a large, quasi-randomized, 2.5-year-long income tax holiday to identify intertemporal labor responses of high-wage earners to net wage changes. In August 2013, the Argentine government exempted a group of wage earners from the income tax for 2.5 years while leaving in place the tax on other high-wage earners. Eligibility was based on whether past wage earnings were below a fixed threshold, thus levying sharply different marginal and average tax rates—effectively 0% for workers below the threshold. Using rich population-wide administrative data and a regression discontinuity design, we estimate a precise and very small wage earnings elasticity of 0.017 for this large, salient, and temporary income tax change. Responses are larger for more flexible outcomes (overtime hours) and for more elastic groups (job switchers and managers). We also find avoidance responses from new entrants who faced no tax if their first monthly wage was below the fixed threshold. This strategic entry below the threshold to dodge taxes required coordination with employers. Our findings indicate rigidities in the labor market that require employer-employee cooperation to be overcome for wage earners to be able to respond to tax changes.
  • Topic: Economics, Labor Issues, Income Inequality, Tax Systems
  • Political Geography: Argentina, Latin America
  • Author: Dario Tortarolo, Roman D. Zarate
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
  • Abstract: We disentangle the extent of imperfect competition in product and labor markets using plant level data. We derive a formula for the ratio between markups and markdowns assuming costminimizing firms that face upward-sloping labour supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labour supply elasticities instrumenting wages with a different set of instruments: including the use of intermediate inputs, input price shocks, and TFP shocks. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. We also estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.
  • Topic: Economics, Labor Issues, Finance, Labor Market, Supply Chains, Price
  • Political Geography: Global Focus
  • Author: Gabriel Felbermayr, Jasmin Katrin Gröschl, Benedikt Heid
  • Publication Date: 12-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: We estimate the short-run trade effects of natural disasters using monthly trade data and data on the physical intensity of earthquakes and storms. We find large negative effects for heavily indebted poor, least developed or landlocked developing countries but only small effects for other economies. We use our estimates to identify key parameters of a dynamic quantitative trade model to disentangle the effects of disasters on supply, demand, and welfare and their spillovers on third countries via trade linkages. We apply our model to quantify the effects of the 1992 earthquake in Nicaragua, a small, heavily indebted poor country, and the 2011 Tohoku earthquake in Japan, a large developed economy. We find that spillovers are negligible if the country affected by a disaster is small but sizable for large economies. Similar disasters have heterogeneous effects on countries’ demand and supply, highlighting the importance of event-specific policies in the aftermath of disasters.
  • Topic: Development, Economics, Natural Disasters, Economic Growth, Trade
  • Political Geography: Japan, Nicaragua
  • Author: Marcel Fratzscher, Tobias Heidland, Lukas Menkhoff, Lucio Sarno, Maik Schmeling
  • Publication Date: 11-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: We construct a novel database of monthly foreign exchange interventions for 49 countries over up to 22 years. We build on a text classification approach that extracts information about interventions from news articles and calibrate our procedure to data about actual interventions. Our new dataset allows us to document stylized facts about the use of foreign exchange interventions for countries that neither publish their data nor make them available to researchers. Moreover, we show that foreign exchange interventions are used in a complementary way with capital controls and macroprudential regulation.
  • Topic: Economics, Foreign Exchange, International Political Economy, Data, Capital Controls
  • Political Geography: Global Focus
  • Author: Manuel Funke, Moritz Schularick, Christoph Trebesch
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: Populism at the country level is at an all-time high, with more than 25% of nations currently governed by populists. How do economies perform under populist leaders? We build a new cross-country database identifying 50 populist presidents and prime ministers 1900-2018. We find that the economic cost of populism is high. After 15 years, GDP per capita is more than 10% lower compared to a plausible non-populist counterfactual. Rising economic nationalism and protectionism, unsustainable macroeconomic policies, and institutional decay under populist rule do lasting damage to the economy.
  • Topic: Economics, Nationalism, Populism, Economic Growth
  • Political Geography: Global Focus
  • Author: Jens Boysen-Hogrefe, Vincent Stamer
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: We provide a calculation tool to assess the properties of a maximumlikelihood (ML) estimator that extrapolates the true prevalence of an infectious disease from a random sample. The tools allow the researcher to correct for the specificity and sensitivity of the underlying medical test, calculate the standard deviation of the estimator and to plan the needed sample size. This document explains the underlying methods of the calculation tools and provides instructions for their proper use. We apply an adaption of the epidemiological SEIR-model to show that ML-estimators from random sampling tests provide a more realistic rate of infection than common approaches.
  • Topic: Economics, International Political Economy, Infectious Diseases
  • Political Geography: Global Focus
  • Author: Wolfgang Lechthaler, Patrick Ring
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: How the provision of unemployment benefits affects employment and unemployment is a debated issue. In this paper, we aim at complementing theoretical and empirical contributions to this debate with a laboratory experiment: We simulate a job market with search effort and labor force participation decisions while varying the maximum length of unemployment benefit eligibility. Our results reveal two separable, opposing effects: Individuals within the labor force search with lower effort when unemployment benefits are extended. However, individuals are more likely to participate in the labor force and to actively search for a job. Concerning employment, the second effect dominates so that unemployment benefits raise employment.
  • Topic: Economics, International Political Economy, Markets, Labor Issues, Employment, Unemployment, Job Creation
  • Political Geography: Global Focus
  • Author: Thando Vilakazi, Stefano Ponte
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Centre for Business and Development Studies (CBDS), Copenhagen Business School
  • Abstract: Power asymmetries in value chains mean that inequalities in returns, access to key resources and share of value added are reinforced and skewed against smaller players. Policies put in place to enforce market rules and ensure fairness can be ineffective in the context of entrenched market power, lack of competition, and high levels of control by lead firms over key resources and rights – necessitating different rules of the game to change the inequalities. Under these circumstances, transformation and economic participation of marginalized groups are unlikely to be achieved, with important socio-economic and political implications. South Africa’s Black Economic Empowerment (BEE) policies and competition laws target economic redress and inclusion of historically disadvantaged people in the ownership and control of economic activity and productive assets. BEE criteria have been embedded in a number of industry empowerment charters, a Broad-Based BEE Act and a series of codes of implementation. South Africa’s competition law is well-established and effectively implemented. Yet, the impacts of these instruments have been frustratingly limited and slow, especially in sectors where a few companies dominate. The paper draws on secondary sources and in-depth interviews with industry players in the South African Hake Deep Sea Trawl (HDST) fishery to examine the interactions between industrial fishery quota allocations by the government, BEE policy, and competition dynamics as they impact on allocation of finite access to national resource endowments. It shows that, even in one of the most regulated sectors of South Africa’s economy, large incumbents maintain a disproportionate amount of bargaining power vis-à-vis smaller players in HDST fishery, both upstream and downstream, and throughout the domestic and global value chains. We conclude that as long as rules protect incumbency, inequality will be sustained. Even where scale economies are at play, quota allocation, transformation and competition regulation should go hand in hand to facilitate the effective participation of black-owned businesses as competitors in the hake value chain.
  • Topic: Economics, Markets, Race, Economic Inequality, Economic Policy, Participation, Fishing, Value Chains
  • Political Geography: South Africa
  • Author: Lisa Ann Richey, Maha Rafi Atal
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Centre for Business and Development Studies (CBDS), Copenhagen Business School
  • Abstract: As the global Covid-19 pandemic spread through Europe and North America, companies raced to communicate how they were responding to the crisis. Advertising that focuses on a company’s response to humanitarian crises is hardly new. Every holiday season features a parade of brands touting their seasonal partnerships with charitable causes. Yet these exercises in “Covid-branding” struck a particular nerve with both consumers and media commentators because so many of the brands stuck to the same script.
  • Topic: Economics, Markets, Communications, Advertising
  • Political Geography: Europe, North America, Global Focus
  • Author: Dragos Adascalitei, Cornel Ban
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Centre for Business and Development Studies (CBDS), Copenhagen Business School
  • Abstract: The East-Central European countries that joined the EU in the 2000s are the unsung success of economic development. This paper discusses the consolidation of an export-led growth model in this region by drawing on an alternative school of thought to Varieties of Capitalism: growth regimes. By focusing on three distinct time periods (2000-2008, 2008-2012 and 2012-2019), it shows that despite marginal shifts towards consumption-led growth through personal debt or wage increases, the core of the region’s economic model continues to be heavily dependent on exports. Combining IPE and CPE analytical frameworks, we show that the consolidation of the CEE export-led model has both systemic and national roots. Specifically, we argue that growing international competition from Asia in the beginning of 2000s has forced firms in Western economies to seek alternative sources of competitiveness that involved a mix of wage moderation at home and expansion towards the East. The internationalization of Western firms met capital hungry Eastern governments, which were all too happy to use FDI to restore the competitiveness of their outdated SOEs. Backed by a social bloc that involved domestic and foreign capital as well as workers in the tradeable sectors, the export-led growth model took off and generated growth rates well above those in core countries. The 2000s also saw an increase in debt fueled consumption, that partially compensated for the lack of wage growth in the region. The crisis provided an opportunity to put an end to hybridization and to reinforce the export-led component of growth through short-term austerity measures and deeper labor market reforms. These changes consolidated the export-led model that remained in place even amidst political reconfigurations that, at least rhetorically, aimed to fight the economic dependency of the region on FDI. After the crisis ended, however, the closing of the debt-finance consumption channel combined with the German export boom to the rest of the world and local demographic decline to put upwards pressure on wage-financed consumption increases without inflationary or external balance problems. Yet despite historically low spreads in the region’s bond markets, this did not count as a full Kaleckian turn, however, with the region’s contribution of consumption to GDP growth remaining far below both consumption-led growth regimes and balanced ones.
  • Topic: Economics, International Political Economy, Foreign Direct Investment, Economic Growth, Exports, State-Owned Enterprises, Consumerism
  • Political Geography: Eastern Europe, Central Europe
  • Author: Yuet-Yee Linda Wong, Audra J. Bowlus
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: We present the first study of the high school-to-work transition for American Millennial males and females. Using data from the PSID Transition to Adulthood from 2005-2011, we estimate the Burdett and Mortensen (1998) model and study changes between Generation X and Millennials. We find convergence in racial differences in transition patterns across the generations and in gender earnings by the Great Recession. These patterns are driven by a large decline in search efficiencies for white males. Finally, we show the labor market deteriorated for high school graduates prior to, with a further decline during, the Great Recession.
  • Topic: Economics, Education, Global Recession, Human Capital, Labor Market, Productivity
  • Political Geography: United States
  • Author: Victor H. Aguiar, Roy Allen, Nail Kashaev
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent rendering standard approaches inapplicable. Instead, we require observation of profits or other optimizing-values such as costs or revenues, and either prices or price proxies of flexibly chosen variables. We extend classical duality results for price-taking firms to a setup with discrete heterogeneity, endogeneity, and limited variation in possibly latent prices. Finally, we show that convergence results for nonparametric estimators may be directly converted to convergence results for production sets.
  • Topic: Economics, Human Capital, Profit, Productivity, Price
  • Political Geography: Canada, Global Focus
  • Author: Martin Gaynor, Nirav Mehta, Seth Richards-Shubik
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: We study physician agency and optimal payment policy in the context of an expensive medication used in dialysis care. Using Medicare claims data we estimate a structural model of treatment decisions, in which physicians differ in their altruism and marginal costs, and this heterogeneity is unobservable to the government. In a novel application of nonlinear pricing methods, we theoretically characterize the optimal unrestricted contract in this screening environment with multidimensional heterogeneity. We combine these results with the estimated model to construct the optimal contract and simulate counterfactual outcomes. The optimal contract is a flexible fee-for-service contract, which pays for reported treatments but uses variable marginal payments instead of constant reimbursement rates, resulting in substantial health improvements and reductions in costs. Our structural approach also yields important qualitative findings, such as rejecting the optimality of any linear contract, and may be employed more broadly to analyze a variety of applications.
  • Topic: Economics, Government, Health, Health Care Policy, Human Capital, Productivity, Medicare
  • Political Geography: United States
  • Author: Elizabeth Caucutt, Lance Lochner, Joseph Mullins, Youngmin Park
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes.
  • Topic: Economics, Labor Issues, Children, Human Capital, Economic Mobility, Credit, Productivity, Skilled Labor, Price
  • Political Geography: Global Focus
  • Author: Jacob Bastian, Lance Lochner
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: Parents spend considerable time and resources investing in their children's development. Given evidence that the Earned Income Tax Credit (EITC) aects maternal labor supply, we investigate how the EITC aects a broad array of time-use activities, focusing on the amount and nature of time spent with children. Using 2003-2018 time-use data, we nd that federal and state EITC expansions increase maternal work time, which reduces time devoted to home production, leisure, and time with children. However, for children of all ages, almost none of the reduction comes from time devoted to investment activities, such as active learning and development activities.
  • Topic: Economics, Labor Issues, Children, Women, Income Inequality, Tax Systems, Human Capital, Family, Productivity
  • Political Geography: United States
  • Author: Yifan Gong, Todd Stinebrickner, Ralph Stinebrickner
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: While a large literature is interested in the relationship between family and labor supply outcomes, little is known about the expectations of these objects at earlier stages. We examine these expectations, taking advantage of unique data from the Berea Panel Study. In addition to characterizing expectations, starting during college, the data details outcomes for ten years after graduation. Methodological contributions come from approaches to validate quality of survey expectations data and the recognition that expectations data, along with longitudinal data, can potentially help address endogeneity issues arising in the estimation of the causal effect of family on labor supply.
  • Topic: Economics, Labor Issues, Human Capital, Family, Labor Market, Productivity
  • Political Geography: Canada, Global Focus
  • Author: Yifan Gong, Ralph Stinebrickner, Todd Stinebrickner
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: An important feature of post-secondary schooling is the experimentation that accompanies sequential decision-making. Specifically, by entering college, a student gains the option to decide at a future time whether it is optimal to remain in college or to drop out, after resolving uncertainty that existed at entrance about factors that affect the return to college. This paper uses data from the Berea Panel Study to quantify the value of this option. The unique nature of the data allows us to make a distinction between “actual” option values and “perceived” option values and to examine the accuracy of students’ perceptions. We find that the average perceived option value is 65% smaller than the average actual option value ($8,670 versus $25,040). A further investigation suggests that this understatement is not due to misperceptions about how much uncertainty is resolved during college, but, rather, because of overoptimism at entrance about the returns to college. In terms of policy implications related to college entrance, we do not find evidence that students understate the overall value of college, which depends on the sum of the option value and expectations at entrance about the returns to college.
  • Topic: Economics, Labor Issues, Human Capital, Higher Education, Economic Mobility, Productivity
  • Political Geography: Global Focus
  • Author: Juan Herreno, Sergio Ocampo
  • Publication Date: 11-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: Selection into self-employment among the poor is dominated by subsistence concerns, which leads to high levels of unproductive self-employment in developing countries. We incorporate this view into an otherwise benchmark macro-development model by allowing for labor frictions. Standard models that rely only on financial frictions are at odds with crucial features of the data, including large self-employment rates among the poor and the response of labor markets after well-identified labor demand shocks. We study the efficacy of a wide range of development policies on occupational choices, prices, and productivity. We find that providing unemployment benefits improves selection into self-employment, increasing total-factor productivity (TFP). Self-employment grants and unconditional transfers lower TFP by making self-employment more attractive to low-productivity individuals. Finally, financial reforms that improve access to credit succeed in raising productivity, but they do not address the subsistence concerns of poor individuals. Self-employment is still concentrated among the poor after the reforms take place.
  • Topic: Economics, Labor Issues, Employment, Human Capital, Macroeconomics, Economic Development , Productivity
  • Political Geography: Global Focus
  • Author: Tamara Gurevitch, Peter R. Herman, Farid Toubal, Yoto V. Yotov
  • Publication Date: 12-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: Using new data on linguistic diversity across and within countries, we examine novel channels though which language affects trade patterns and economic welfare. We find that linguistic similarity within a country accounts for about 10 percent of estimated `home bias', demonstrating the importance of shared languages for domestic integration. To highlight the general equilibrium implications of domestic language proximity, we simulate the repeal of Quebec's Bill 101, which made French an official language in Canada and established fundamental language rights for Frenchspeakers. The analysis demonstrates that domestic language diversity has significant implications for Canada's welfare but also sizable economic consequences that stretch far beyond its borders.
  • Topic: Economics, Global Political Economy, Economic Growth, Linguistics, Trade
  • Political Geography: Canada, Quebec
  • Author: Anthony Edo, Jacques Melitz
  • Publication Date: 12-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: The scale of the rise in personal wealth following the Black Death calls the life-cycle hypothesis of consumption into consideration. This paper shows for the first time that the wealth effect of the Black Death on the price level continued in England for generations, up to 1450. Indeed, in absence of consideration of the wealth effect, other influences on the price level do not even appear in the econometric analysis. The separate roles of coinage, population, trade, wages and annual number of days worked for wages all also receive attention and new results follow for adjustment in the labor market.
  • Topic: Economics, International Political Economy, Infectious Diseases, Population, Trade, Labor Market
  • Political Geography: Europe, England
  • Author: Vanessa Alviarez, Keith Head, Thierry Mayer
  • Publication Date: 11-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: We assess the consequences for consumers in 76 countries of multinational acquisitions in beer and spirits. Outcomes depend on how changes in ownership affect markups versus efficiency. We find that owner fixed effects contribute very little to the performance of brands. On average, foreign ownership tends to raise costs and lower appeal. Using the estimated model, we simulate the consequences of counterfactual national merger regulation. The US beer price index would have been 4-7% higher without divestitures. Up to 30% savings could have been obtained in Latin America by emulating the pro-competition policies of the US and EU.
  • Topic: Economics, International Political Economy, Multinational Corporations
  • Political Geography: United States, United Kingdom, Latin America, Global Focus
  • Author: Cécile Couharde, Carl Grekou, Valérie Mignon
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper describes the new CEPII-MULTIPRIL database on Multilateral Price Levels (MPL) introduced in 2020. The MULTIPRIL database covers a wide sample of 178 countries over the 1990-2018 period, and includes relative price level series computed vis-à-vis two sets of trading partners (177 and the top 30) according to three different trade-weighting schemes. It also contains MPL-based currency misalignments series for 156 countries over the 1991-2018 period. MULTIPRIL offers the potential to improve the coverage and quality of worldwide price-competitiveness comparisons. By focusing on price level data, it usefully complements the EQCHANGE database on equilibrium exchange rates and currency misalignments derived from series in indices. Its multilateral setting provides a more comprehensive picture of relative price levels and currency misalignments compared to existing bilateral measures.
  • Topic: Economics, International Political Economy, Exchange Rate Policy, Trade, Database, Price
  • Political Geography: Global Focus
  • Author: Aymeric Ortmans, Fabien Tripier
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper studies how the announcement of the ECB’s monetary policies stopped the spread of the COVID-19 pandemic to the European sovereign debt market. We show that up to March 9, the occurrence of new cases in euro area countries had a sizeable and persistent effect on 10-year sovereign bond spreads relative to Germany: 10 new confirmed cases per million people were accompanied by an immediate spread increase of 0.03 percentage points (ppt) that lasted 5 days, for a total increase of 0.35 ppt. For periods afterwards,the effect falls to near zero and is not significant. We interpret this change as an indicator of the success of the ECB’s March 12 press conference, despite the “we are not here to close spreads” controversy. Our results hold for the stock market, providing further evidence of the effectiveness of the ECB’s March 12 announcements in stopping the financial turmoil. A counterfactual analysis shows that without the shift in the sensitivity of sovereign bond markets to COVID-19, spreads would have surged to 4.2% in France, 12.5% in Spain, and 19.5% in Italy by March 18, when the ECB’s Pandemic Emergency Purchase Programme was finally announced.
  • Topic: Debt, Economics, International Political Economy, Markets, Central Bank, COVID-19, Banking
  • Political Geography: Europe
  • Author: Farid Toubal, Mathieu Parenti, Julien Martin
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.
  • Topic: Economics, International Political Economy, Markets, Tax Systems, Corporations , Tax Evasion, Corporate Tax
  • Political Geography: United States, Global Focus
  • Author: Vincent Vicard, Amélie Guillin, Anne-Laure Delatte
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: Tax avoidance schemes generate artificially complex cross-border financial structures inflating measured international investment stocks in tax havens. Using a standard gravity framework, we estimate that about 40% of global assets (FDI, portfolio equity and debt) are `abnormal' – unexplained – stocks. Abnormal stocks are increasing over time and concentrated in a limited number of jurisdictions. Six jurisdictions including three European countries are the largest contributors: Cayman, Bermuda, Luxembourg, Hong Kong, Ireland and the Netherlands. Interestingly, the Luxleaks in 2014 do not appear to have diverted cross-border investments away.
  • Topic: Economics, International Political Economy, International Trade and Finance, Finance, Borders, Investment, Stock Markets
  • Political Geography: Global Focus
  • Author: Anne-Laure Delatte, Adrien Matray, Noémie Pinardon-Touati
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%--14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.
  • Topic: Economics, International Political Economy, Private Sector, Credit, Banking
  • Political Geography: France
  • Author: Jorge Carrera, Blaise Gnimassoun, Valérie Mignon, Romain Restout
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper conducts an in-depth empirical investigation on the impact of the exchange rate regime (ERR) on real currency misalignments in a panel of 17 Latin American countries over the 1970-2016 period. We consider explicitly the two dimensions of misalignments, size and persistence, and evaluate four different ERR classifications. We also pay attention to cross-sectional dependencies across countries that appear to be important in Latin America, and provide several robustness checks. Our main findings show that, although fixed ERR perform well in limiting the size of misalignments – and in reducing inflation and fiscal deficit – the disequilibria are more persistent. On the contrary, allowing for more flexibility reduces persistence but increases the size of misalignments. Overall, we show that Latin American countries face a crucial trade-off when they have to choose their ERR.
  • Topic: Economics, International Political Economy, Exchange Rate Policy, Currency
  • Political Geography: Latin America
  • Author: Gianluca Orefice, Giovanni Peri
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: The process of matching between firms and workers is an important mechanism in determining the distribution of wages. In a labor market characterised by large dispersion of workers' productivity and worker-firm complementarity, high quality firms have strong incentives to screen for the quality of workers. This process will increase the positive quality association of firm-worker matches known as positive assortative matching (PAM). Immigration in a local labor market, by increasing the variance of workers abilities, may drive stronger PAM between firms and workers. Using French matched employer-employee (DADS) data over the period 1995-2005 we document that positive supply-driven changes of immigrant workers in a district increased the strength of PAM. We then show that this association is consistent with causality, is quantitatively significant, and is associated with higher average productivity and firm profits, but also with higher wage dispersion. We also show that the increased degree of positive assortative matching is mainly reached by high-productive firms "losing" lower quality workers and "attracting" higher quality workers.
  • Topic: Economics, International Political Economy, Labor Issues, Immigration, Immigrants, Migrant Workers
  • Political Geography: France
  • Author: Rafael Cezar, Timothée Gigout, Fabien Tripier
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.
  • Topic: Economics, International Political Economy, Foreign Direct Investment, Borders, Investment
  • Political Geography: Global Focus
  • Author: Simone Bertolia, Frédéric Docquier, Hillel Rapoport, Ilse Ruyssen
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: We use a multilevel approach to characterize the relationship between weather shocks and (internal and international) migration intentions. We combine individual survey data on migration intentions with measures of localized weather shocks for Western African countries over 2008-2016. A meta-analysis on results from about 310,000 regressions is conducted to identify the specification of weather anoma-lies that maximizes the goodness of fit of our empirical model. We then use this best specification to document heterogeneous mobility responses to weather shocks, which can be due to differences in long-term climatic conditions, migration percep- tions, or adaptation capabilities. We find that droughts are associated with a higher probability of migration intentions in Senegal, Niger and Ivory Coast. The effect on international migration intentions are only significant in Niger. These effects are amplified, but qualitatively similar, when restricting the sample to rural low-skilled respondents.
  • Topic: Economics, International Political Economy, Migration, Labor Issues, Skilled Labor, Weather
  • Political Geography: West Africa, Senegal, Ivory Coast, Niger
  • Author: Dany Bahar, Hillel Rapoport, Riccardo Turati
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: We empirically investigate the relationship between a country’s economic complexity and the diversity in the birthplaces of its immigrants. Our cross-country analysis suggests that birthplace diversity is strongly and positively associated with economic complexity. This holds particularly for diversity among highly educated migrants and for countries at intermediate levels of economic complexity. The results are robust to accounting for previous trends in birthplace diversity as well as to using alternatives diversity measures. We address endogeneity concerns by instrumenting diversity through predicted stocks from a pseudo-gravity model as well as from a standard shift-share approach. Finally, we provide evidence suggesting that birthplace diversity boosts economic complexity by increasing the diversification of the host country’s export basket.
  • Topic: Economics, International Political Economy, Multiculturalism, Immigrants, Diversity, Economic Complexity
  • Political Geography: Global Focus
  • Author: Sarah Ladislaw, Jesse Barnett
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: The CSIS Energy Program conducted research, commissioned papers, held a workshop, and developed this report on the changing role of energy in the U.S. economy. The purpose is twofold: (1) improve understanding of how energy impacts the U.S. economy at multiple levels; and (2) evaluate the performance of policies designed to create economic opportunity in the energy sector.
  • Topic: Economics, Energy Policy, Renewable Energy
  • Political Geography: North America, United States of America
  • Author: Getachew Diriba, Christian Man
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: Ethiopian Prime Minister Abiy Ahmed has been widely hailed for his promises to open political space, usher in economic liberalization, and remake the country’s poor record on human rights. However, to truly transform his country, Dr. Abiy must first transform agriculture, which is the nucleus of the Ethiopian economy and by far the largest employer. Drawing on interviews and focus groups with seventy stakeholders, this report examines the past wins, current endeavors, and future challenges of Ethiopia’s Agricultural Transformation Agency (ATA), a federal entity established in 2010 to drive fundamental changes for the country’s 15 million smallholder farmers. It highlights the relationship between the ATA and the Ethiopian Ministry of Agriculture, the importance of innovation in agricultural transformation, and the role donors like the United States government can play in supporting such-efforts for country-led development.
  • Topic: Agriculture, Development, Economics, Human Rights
  • Political Geography: Africa, Ethiopia
  • Author: Arvind Subramanian
  • Publication Date: 07-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: My recent research paper “India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” (hereafter “GDP paper”) and the associated op-ed in the Indian Express on June 11, 2019 have generated considerable debate. This is encouraging because serious argument and counter-argument are the basis for good policy-making. Since the issue itself is of great importance, the counter-arguments to my analysis warrant a considered response. That is the aim of this note, which is a complement to the original paper, addressing both the larger issues and some of the specific points that have been raised. The note is structured as follows. Section II describes my engagement with India’s GDP estimation when I was Chief Economic Adviser. Section III elaborates on the framework/approach underlying the GDP paper. Section IV makes explicit the key puzzle surrounding India’s growth estimates, and addresses the possible explanations for it. Section V explores the puzzle in greater detail. Section VI provides additional cross-country evidence on growth and price deflators, which support the findings of the original paper, namely that growth during 2011-16 was likely overestimated by a significant margin. Section VII addresses two broad objections to the main findings. Section VIII discusses some of the methodological critiques of the paper. Section IX offers some thoughts on the way forward.
  • Topic: Economics, Political Economy, International Development, Economic Growth
  • Political Geography: South Asia, India
  • Author: Alice Evans
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: Support for gender equality has risen, globally. Analyses of this trend focus on individual and/or country-level characteristics. But this overlooks sub-national variation. Citydwellers are more likely to support gender equality in education, employment, leadership, and leisure. Why is this? This paper investigates the causes of rural-urban differences through comparative, qualitative research. It centres on Cambodia, where the growth of rural garment factories enables us to test theories that female employment fosters support for gender equality: potentially closing rural-urban differences; or whether other important aspects of city-living accelerate support for gender equality. Drawing on this rural and urban fieldwork, the paper suggests why social change is faster in Cambodian cities. First, cities raise the opportunity costs of gender divisions of labour – given higher living costs and more economic opportunities for women. Second, cities increase exposure to alternatives. People living in more interconnected, heterogeneous, densely populated areas are more exposed to women demonstrating their equal competence in socially valued, masculine domains. Third, they have more avenues to collectively contest established practices. Association and exposure reinforce growing flexibility in gender divisions of labour. By investigating the causes of subnational variation, this paper advances a new theory of growing support for gender equality.
  • Topic: Economics, Gender Issues, Urbanization, Women, Inequality
  • Political Geography: Cambodia, Southeast Asia
  • Author: Alice Evans
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: This paper shows that countries may reduce labour repression if they perceive this as conducive to export growth. This paper traces what happened before, in the presence of, and then following the withdrawal of international economic incentives for pro-labour reforms in Vietnam and Bangladesh. The Government of Vietnam announced it would allow independent trade unions, in order to join the Trans-Pacific Partnership (TPP) and increase market access. Similarly, the Government of Bangladesh rescinded restrictions on unions, following global condemnation of Rana Plaza and fear of buyers leaving en masse. Both governments reduced labour repression to promote export growth. With high-level authorisation, Vietnamese and Bangladeshi activists and reformists became less fearful, and mobilised for substantive change. However, these economic incentives were short-lived: after Trump’s election, the USA withdrew from TPP; buyers continued to source from Bangladesh, and squeezed prices (without requiring labour reforms). Both governments then amped up labour repression - notwithstanding private regulation, economic upgrading, industry growth, and mass strikes.
  • Topic: Economics, Labor Issues, Reform, Economic Growth, Trans-Pacific Partnership
  • Political Geography: Bangladesh, South Asia, Vietnam
  • Author: Thorsten Beck, Liliana Rojas-Suarez
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: A sound financial regulatory framework is critical for minimizing the risk imposed by financial system fra­gility. In the world’s emerging markets and developing economies (EMDEs), such regulation is also essential to support economic development and poverty reduc­tion. Meanwhile, it is increasingly recognized that global financial stability is a global public good: recent decades have seen the development of new inter­national financial regulatory standards, to serve as benchmarks for gauging regulation across countries, facilitate cooperation among financial supervisors from different countries, and create a level playing field for financial institutions wherever they operate. For the worldwide banking industry, the international regulatory standards promulgated by the Basel Com­mittee on Banking Supervision (BCBS) stand out for their wide-ranging scope and detail. Even though the latest Basel recommendations, adopted in late 2017 and known as Basel III, are, like their predecessors, calibrated primarily for advanced countries, many EMDEs are in the process of adopting and adapting them, and many others are considering it. They do so because they see it as in their long-term interest, but at the same time the new standards pose for them new risks and challenges. This report assesses the implica­tions of Basel III for EMDEs and provides recommen­dations for both international and local policymakers to make Basel III work for these economies.
  • Topic: Development, Economics, Emerging Markets, Markets
  • Political Geography: Global Focus
  • Author: Maurice Obstfeld
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that US monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the US economy from the disproportionate impact of US monetary policy on the outside world. In themselves, global factors need not undermine a central bank’s ability to control the price level over the long term—after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
  • Topic: Economics, Government, International Trade and Finance, Monetary Policy
  • Political Geography: North America, United States of America
  • Author: Chad P. Bown, Jennifer A. Hillman
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
  • Topic: Economics, World Trade Organization, Tariffs, Trade
  • Political Geography: Japan, Europe, Asia, North America, United States of America, European Union
  • Author: Patrick Honohan
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Should central banks take more account of ethical issues, notably the impact of monetary policy actions on the distribution of income and wealth and on efforts to combat climate change, in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these issues.
  • Topic: Climate Change, Economics, Monetary Policy, Inequality, Central Bank
  • Political Geography: North America, Global Focus, United States of America
  • Author: Alvaro Leandro, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
  • Topic: Economics, Sovereign Wealth Funds, Banks, Risk
  • Political Geography: Europe, Global Focus
  • Author: Monica de Bolle, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Since the mid-2000s, the platforms of major political parties in both advanced and emerging-market economies have increasingly emphasized policies that stress national sovereignty, reject multilateralism, and seek to advance national interests through measures that come at the expense of foreign interests. This paper documents this shift by evaluating the policy platforms of the largest political parties (about 55 in total) in the Group of Twenty (G-20) countries with regard to trade policy, foreign direct investment (FDI), immigration, and multilateral organizations. Preference shifts with respect to industrial policy, competition policy, and macroeconomic populism are also examined. In advanced economies, the biggest shifts were toward restrictions on immigration and trade and toward macroeconomic populism. In emerging-market economies, the largest preference shifts were toward industrial policies favoring specific sectors, macroeconomic populism, and industrial concentration. Trade protectionism and skepticism toward multilateral organizations and agreements have increased in both advanced and emerging-market economies. As of 2018, economic policy preferences in emerging-market economies were more nationalist and less liberal than in advanced countries, but the gap has narrowed. Right-wing parties tend to be more nationalist than left-wing parties in the areas of immigration restrictions, FDI restrictions, and antimultilateralism, but there is no significant difference with respect to trade protectionism.
  • Topic: Economics, International Trade and Finance, Nationalism, Politics, Populism, Macroeconomics
  • Political Geography: Global Focus
  • Author: Douglas A. Irwin
  • Publication Date: 05-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
  • Topic: Economics, Reform, Economic Growth, Trade
  • Political Geography: Global Focus
  • Author: Lee Buchheit, Guillaume Chabert, Chanda DeLong, Jeromin Zettelmeyer
  • Publication Date: 05-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper attempts to provide a playbook for the sovereign debt restructuring process, drawing on the experience with sovereign debt restructuring since the 1980s. It begins with a discussion of the participating actors and their interests. It then describes the considerations that must be weighed in designing, negotiating, and concluding a debt restructuring, in light of two problems: asymmetric information between the debtor and the creditors, and creditor coordination problems, which can lead to free riding (the “holdout” problem). The paper focuses on how these problems, which can lead to inefficiently negotiated outcomes, can be managed and minimized in practice.
  • Topic: Debt, Economics, Sovereignty, Finance
  • Political Geography: Global
  • Author: Chad P. Bown
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China’s state-owned enterprises and industrial subsidies, as well as China’s development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis—which may result in a severely weakened World Trade Organization—was deliberate and out of frustration with the institution itself.
  • Topic: Economics, International Trade and Finance, World Trade Organization, Bilateral Relations, Trade Wars, Donald Trump, Imports
  • Political Geography: China, Asia, North America, United States of America
  • Author: Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.
  • Topic: Economics, Inflation, Unemployment
  • Political Geography: North America, United States of America
  • Author: Maria C. Latorre, Zoryana Olekseyuk, Hidemichi Yonezawa, Sherman Robinson
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines 12 economic simulation models that estimate the impact of Brexit (Britain’s exit from the European Union). Most of the studies find adverse effects for the United Kingdom (UK) and the EU-27. The UK’s GDP losses from a hard Brexit (reversion to World Trade Organization rules due to a lack of UK-EU agreement) range from –1.2 to –4.5 percent in most of the models analyzed. A soft Brexit (e.g., Norway arrangement, which seems in line with the nonbinding text of the political declaration of November 14, 2018, on the future EU-UK relationship) has about half the negative impact of a hard Brexit. Only two of the models derive gains for the UK after Brexit because they are based on unrealistic assumptions. The authors analyze more deeply a computable general equilibrium model that includes productivity and firm selection effects within manufacturing sectors and operations of foreign multinationals in services. Based on this latest model, they explain the likely economic impact of Brexit on a wide range of macroeconomic variables, namely GDP, wages, private consumption, capital remuneration, aggregate exports, aggregate imports, and the consumer price index.
  • Topic: Economics, World Trade Organization, Brexit, Multinational Corporations
  • Political Geography: Britain, Europe, European Union
  • Author: Felipe González, Nicolas Véron
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: China's rapid rise and unique economic system and the increasingly aggressive and disruptive US trade policy are posing an unprecedented threat to the global rules-based trading and economic system. The European Union has critical interests at stake in the current escalation, even as it has so far been comparatively spared from US trade policy belligerence and China's reactions. In this context, the European Union should adopt an independent and proactive stance, building on recent efforts and going beyond them. The European Union, even more than the United States or China, has a strategic interest in the preservation of the global rules-based order embodied by the World Trade Organization (WTO). It must play a leading role in steering WTO reform and modernization, working closely with broadly aligned third countries such as Japan and other players. It should expand its outreach beyond its immediate negotiating counterparts in both the United States and China, and leading European officials at both the EU and member state levels should work at better understanding China. While strengthening its domestic policy instruments to address new challenges, such as the screening of foreign direct investment for security purposes, the European Union must also resist its own temptations of protectionism and economic nationalism. In support of these objectives, the European Union should prepare itself for difficult decisions, which may involve revising some of its current red lines in international trade negotiations. Conversely, the European Union should stand firm on principles such as refusing one-sided agreements and rejecting abusive recourse to national security arguments in trade policies. The European Parliament, in working with the European Council and the European Commission, will have a critical role to play in steering the European Union through these challenging times.
  • Topic: International Relations, Economics, Trade Wars, Trade Policy
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union